Commentary and Tracking of a Portfolio of Stocks using approach from "The Little Book that Beats the Market" by Joel Greenblatt aka Magic Formula Investing

Sunday, November 19, 2017

Is GME A Bargain?

Is GME A Bargain?

As my readers know, I have two real money MFI portfolios. One I call "Select", in that I pick the stocks with really no constraints. The other portfolio is picked by formula and random number generator. The purpose of the formula and random number generator is that we all bring our biases to investing.

If a stock has done well for you in the past, most people are more likely to buy it in the future. Conversely, if you have been burned by a stock, you may be less likely to buy it again. Ironically, that may be the exact opposite of what you should do. So I try to take that out.

GME is a great example of a much hated stock. I personally have struggled with it. Here is a table summarizing my GME experience:

Date Purchased

Date
Sold

Stock

Purchase Price

Current/Sold Price

Open/Closed

Pct
Gain

09/30/14

09/30/15

GME

$41.70

$40.82

Closed

1.3%

12/31/14

12/30/15

GME

$34.21

$28.71

Closed

-11.9%

03/31/15

03/31/16

GME

$37.69

$32.12

Closed

-10.9%

12/31/15

12/30/16

GME

$28.34

$25.45

Closed

-5.0%

10/03/16

10/04/17

GME

$27.70

$20.14

Closed

-21.8%

07/10/17

GME

$20.95

$16.31

Open

-20.3%

10/02/17

GME

$20.50

$16.31

Open

-20.4%

So I have bought it 7 times (all in my MFI Formula). My average "gain" thus far is -12.7%. Pretty discouraging. I do allow myself to throw out one stock when I use the Formula and I was so so tempted to toss GME in October (so far that may have been the right instinct).

But even though they are hated and the stock price is declining does not mean the stock is a bad value at $16.31. I would suggest that it may actually be a screaming buy. It pays a 9.4% dividend. Now there probably is a non zero chance that that dividend gets cut at some point, but analysts have GME making about $3,30 a share in 2018 and 2019. Yes not as good as $3.77 in fiscal year 2017, but still seems very good for a company selling at $16.31.

I thought the same thing back in August when BKE dipped under $14 (it is now over $20) - a company can get beaten down too far. I may buy some shares ahead of earnings on Tuesday. Here is a seeking alpha article: